Will US Consumers Start Spending Again Soon?

The conventional wisdom is that investors are forward-looking. Consequently, those who are buying stocks now must be expecting that U.S. consumers, who represent more than two-thirds of the economy, are poised to open up their purses and wallets and start spending again.

But if that’s the case, why do so many recent reports indicate otherwise? Consider the following (excerpts):

“CNN Poll: U.S. Still in a Serious Recession” (CNN)

Americans are not nearly as optimistic about the economy as the chairman of the Federal Reserve seems to be, a national poll released Thursday shows.

Eighty-six percent of those questioned in a CNN/Opinion Research Corporation survey said they think the United States is still in a recession, with 13% saying the nation’s economic downturn has ended. According to the poll, 42% say the country is in a serious recession, 35% call it a moderate recession, and one in 10 characterize it as a mild recession.

Earlier this week, Federal Reserve Chairman Ben Bernanke said the recession is very likely over, although the job market will continue to struggle for some time.

“Americans Plan to Limit Spending on Recovery Concern” (Bloomberg)

Americans plan to refrain from boosting their spending even after the biggest drop in consumption since 1980, signaling concern about the direction of the economy over the next six months.

Only 8 percent of U.S. adults plan to increase household spending, almost one-third will spend less, and 58 percent expect to “stay the course,” a Bloomberg News poll showed. More than 3 in 4 said they reduced spending in the past year.

Respondents were divided over whether the economy will get better or stay the same in the next six months; only 1 in 6 said things will get worse. More than 40 percent of those surveyed said they feel less financially secure than they did when President Barack Obama took office in January, outnumbering 35 percent who said they feel more secure.

“Retailers and Suppliers Expect Consumer Spending to Trail Financial Markets Recovery” (BusinessWire)

Faced with one of the most challenging years on record, retailers and those who supply them believe that consumer spending will lag the turnaround of the U.S. financial markets. According to a new study released today by CIT Group Inc. (CIT), a leading provider of financing to small businesses and middle market companies, 47% of retail respondents believe the financial markets will turn around next year; separately, 45% believe that consumer spending will not return to 2007 levels until 2011 or 2012.

The continuing softness in the retail market has caused many retailers to reevaluate and adjust their business models. They are taking a more conservative and cautious approach to the upcoming holiday season by controlling their inventories, and are planning more aggressive discounts earlier in the season.
Other key findings among retail respondents include:

* 67% will stock less inventory than in 2008;
* 69% will expand online and direct selling;
* 56% will advertise more aggressively;
* 66% will offer greater discounts; and
* 68% will hold clearance and other sales prior to New Year`s Day.

“CE Purchases Low in First Half of 2009, But Consumer Intentions Higher for the Second Half” (Parks Associates)

The recession continues to limit CE shopping, as nearly 50% of U.S. broadband households did not buy a CE product in the first half of 2009, according to Parks Associates’ Consumer Decision Process.

This ongoing service, which surveys consumers on their past purchases and future intentions for over 35 CE products, found consumers are still hesitant to buy, with fewer households overall buying CE than in 2007 and 2008.

“In general, U.S. consumers who are buying are taking longer to do so, spending more time researching the product, and then waiting for the right time - meaning a sale or steep discount - to make the purchase,” said Tricia Parks, CEO, Parks Associates.

“Visa Expects Lackluster U.S. Consumer Spending” (Reuters)

U.S. consumer spending will remain lackluster for the rest of 2009, Visa Inc’s (V.N) chief executive said on Wednesday, as Americans struggle with the worst economic crisis since the Great Depression.

Earlier this week, the world’s largest payment network said payment volume fell less in August than in July in the United States, in a sign the contraction of the sector may be stabilizing.

But the way to recovery still looks challenging, Chief Executive Joseph Saunders said at a Barclays Capital conference.

“What persists is a resistance to spend more money,” said Saunders, who added he did not expect a significant uptick in consumer spending for the rest of 2009. “We are operating in a very challenging environment.”

Perhaps this is what today’s investors are really doing when they say they are looking ahead?

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